Fed decision and risks ahead-1

Finance experts have already agreed that Fed wouldn’t raise interest rates for a very long time after the last night’s Fed decision. Things turned out as expected and the rate were kept intact. Fed’s press release, however, was quite interesting.

Before the FOMC Meeting, the analyses were already reflecting that the Fed will continue its policy without a hike or maybe by a single rate hike at the most. But, I’m still insistent that the Fed might raise rates one more time before the end of this year. Besides, expectations for another hike are increasing as the Fed stated that they might raise interest rates in September.

Fed’s interest rate decision served as an inspiration for the other central banks of the world that are preparing to release their own rate decisions soon: Central Banks of Indonesia, Russia, Colombia, Iceland, Switzerland, UK, Brazil, Philippines, Thailand are not expected to hike interest rates at this week’s meeting. Only Norway may raise rates as Norwegian inflation remained above the targets.

In short, although many countries were soothed by Fed’s rate announcement, it comprised all sorts of details enough to make me concerned. I’ll tell you all about it in tomorrow’s report.

“What will the Government do after the elections?”

According to most experts, Turkey will be left with two options after the elections. If Turkey goes for the first option, it will face economic risks, if it goes for the second, however, it will face political risks.

  • 1st option (high political risk, low economic risk): To take the most low-cost step by calling the IMF. Although signing a stand-by arrangement with the IMF may seem risky especially after criticising the IMF in the harshest way possible, it stands out as the most low-cost solution considering Turkey’s desperate need for funds.
  • 2nd option (high economic risk, low political risk): To overcome the financial bottleneck we’re currently in without calling the IMF. Treasury can provide funding both for banks and markets by offering around a 50 billion TRY loan with up to 10 years repayment plans. Although this step doesn’t involve any “political risk”, it will eventually bring economic risks since its success is not guaranteed.

As a matter of fact, neither of these options guarantees success. Government will obviously need to take some specific measures once the elections are over while it still can keep this bottleneck under control. We still have a 10-day wait ahead to see what will happen.